Article / 10 June 2016 at 8:17 GMT

From the Floor: Brexit kicks markets into touch

Your Next Trade
  • Dollar weakness diluted as markets stymied ahead of Brexit referendum
  • Markets reluctant to strike 'out of the zone' until referendum is done — Hardy
  • Fed credibility deficit could see less attention on next week's FOMC — Hardy
  • Oil rally could be reaching outer limits of upward push — Hansen
  • S&P 500 rejection of lows 'encouraging' but 'strange' — Garnry
  • Twitter a 'disappointment' but LinkedIn momentum 'gathering strength' — Garny
  • Starbucks gets bitter taste from China slowdown


By Martin O'Rourke

Eng-er-land, Eng-er-land, Eng-er-land!

The European football championships start this evening with France and Romania kicking off a football extravaganza through the next month that should have more than the odd trader torn between his forex screen and the TV.

You can also bet that the (in)famous chant associated with English football fans will have that slight extra edge as the countdown to The UK's Brexit day hits 13. Not best known for being European leaning, the assertion of English national pride will almost certainly be tinged with just a little bit extra through the next two weeks.

Markets are feeling that little extra tinge too with the weakness in dollar this week somewhat mitigated by a reluctance to take big positions.

"Markets generally are reluctant to put on positions ahead of the Brexit vote", says John J Hardy, head of forex strategy at Saxo Bank. "Brexit is holding everything up in a macro sense and markets don't want to take anything out of the zone until the referendum is behind us".

That has led to a remarkable symmetry in EURSUSD movements pirhouetting perfectly between a Fibonacci and another Fibonacci retracement level.

"We're seeing a technical action in EURUSD with the dollar failing to follow through on weakness after last week's nonfarm payrolls report", says Hardy.

EURUSD action all technicalr

Source: SaxoTraderGO

That has left the Swiss franc as the only currency really prepared to raise its head above the parapet as EURCHF potentially gears up for tests of 1.08 and 1.0750, big support areas, Hardy says.

"CHF is definitely the exception as it goes through the 200-day moving average and EURCHF will be a big reactor to the Brexit or non-Brexit vote on June 23", Hardy says. "There are capital flows building into Switzerland over the last month above and beyond what the tendency has been before".

Fed unmasked

The US Federal Reserve is looking for a new face it seems after this week's embarrassing about-turn on the back of last week's deeply damaging NFP number which has left it scrambling to re-establish credibility.

"Increasingly the Fed is losing face and losing credibility with its very awkward stumbling over its own forward guidance but we'll probably get it trying to talk up its credibility and ability to hike on the assumption that things will get better, but frankly the market is having none of it", Hardy says. "That means next week's FOMC is likely to be less impactful than you would expect it to be".

Commodities rally

The dollar theme is also helping spur commodities but "we are now in overbought positions", warns Ole Hansen, head of Saxo Bank's commodities strategy, and that is leading to some retracement of the big gains in the last four weeks, especially in oil.

"Oil's been behaving very nicely within an upward sloping wedge with the support now established at $49.90/barrel in WTI", says Hansen. "That is the level to look out for with upside to $52/b":

"We're not far away from potential profit taking", he says, live from the Copenhagen floor. "At this stage the focus is still on Nigeria and Canada which means the downside move could be limited but the rigs data tonight is important if we see a continuation of last week's rise in rigs".

Brent crude was at $51.43/b at 0655 GMT. WTI was at $49.97/b.

Gold too could potentially be in retracement mode although the more pertinent factor here is the record low earlier this week in German bund yields which continues to attract buyers into precious metals. The support level is $1,244/oz, says Hansen, with gold at $1,265/oz at 0655 GMT.

WTI oil progressing nicely through an upward sloping wedge


Source. SaxoTraderGO

Strange behaviour

The general risk-off mode Thursday and overnight in Asia did not find its parallel in the S&P 500 which in a "strange" but rather "encouraging" move rejected previous lows "quite forcibly", says Saxo Bank's head of equities strategy Peter Garnry.

"It's one of the better-performing asset classes and it was quite encouraging to see this resistance if a bit strange", says Saxo's equities chief.

Elsewhere, Garnry is struck by the upward momentum in social media career platform LinkedIn which is "gathering strength" but Twitter continues to disappoint. "I think we will have to wait until Q2 until we get a real insight into what is going on there", says Garnry.

And finally....

Who doesn't fancy a cup of coffee in the morning (and your scribe will be grabbing one the minute he publishes), but global coffee chain Starbucks will probably be finding the taste a bit bitter today as the share price remains stuck around the $55.50 zone.

"Trouble in China is really impacting the prospects' profile of Starbucks", says Garnry.

There has not, as of yet, been any notable impact from the Brexit vote on the UK's relatively new-found love of coffee drinking but a return to more patriotic builders-tea quaffing in another manifestation of Englishness will no doubt have the board in Seattle quaking.

Or perhaps not. Maybe we're all getting just a tad too carried away with June 23!


Football fans are passionate and an assertion of Englishness through the next two weeks at the European Football Championships is inevitable ahead of the June 23 referendum. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note:
From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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